Examining Underinvestment in Agriculture

Throughout Africa, and in particular Ghana, policymakers are seeking successful strategies to improve farmers’ yields and strengthen the country’s rural economy. Christopher Udry’s study is designed to illuminate central questions regarding agricultural intensification and the adoption of new technologies. In particular, this research addresses problems such as farmer underinvestment in agriculture, rainfall insurance as a means to reduce risk and increase investment, and appropriate rainfall insurance pricing schemes.

This project uses a randomized design to evaluate the effectiveness of various interventions targeted at increasing farmers’ investment in agriculture. One hundred and twenty-five different clusters of maize farmers have been assigned one of seven interventions, which include: free rainfall insurance, subsidized rainfall insurance, rainfall insurance, capital drops, capital drops and free rainfall insurance, capital drops and subsidized rainfall insurance, capital drops and rainfall insurance. There is also a control group. Baseline and endline surveys will gather detailed information on socio-demographic indicators, household well-being and nutrition, and agricultural investment and yields, allowing for measurement of the interventions.

Research Questions:

If we find important effects of the cash grants on investment choices, what are the constraints to saving and borrowing that inhibit these investments? If the index insurance sparks additional investment by a subset of farmers, what are the failures of informal insurance that led to less intensive agriculture in the absence of our intervention? What populations show evidence of particular difficulty in accumulating saving or accessing loans – indigenes or migrants? Older men? Those with fewer social connections to the city?

As farmers receive or observe their friends and relations receiving actual insurance payouts, how does their investment behavior and demand for insurance change?

Those who receive subsidized or free rainfall insurance, or cash grants have the opportunity for higher returns in a given season. How do those higher returns influence future investment?